By Yongnian Zheng

Creating a South China Common Market to Address Hong Kong and Taiwan Issues

The creation of a
South China Common Market would symbolize a more open attitude from China,
represent the progress of its opening-up policies, and offer an innovative
solution to the development dilemma faced by the international community. It would
not only enhance the international competitiveness of China’s economy, but also
create a social and economic environment to solve the Hong Kong and Taiwan
issues, and eventually achieve national unity in the long run.

The South China
Common Market would encompass eleven cities around the Zhujiang Bay Area,
namely Guangzhou, Shenzhen, Dongguan, Zhuhai, Foshan, Jiangmen, Huizhou,
Zhongshan, Zhaoqing, Hong Kong, and Macau. In terms of economic aggregate, this
is a major region in the world with a high level of economic development. It
has a GDP of USD 1.3 trillion, twice of that of the San Francisco Bay Area and
close to that of the New York Bay Area. And the value of its foreign trade totals
USD 1.5 trillion, three times more than that of the Tokyo Bay Area. At present,
this region has attracted 70 out of the world’s top 100 banks. With the Hong
Kong Exchanges and Clearing Limited and the Shenzhen Stock Exchange playing
significant roles in fundraising, the region has become the largest financial
center in the world by market capitalization of listed companies. In addition,
this region is an important transport hub, with its ports handling more than 72
million 20-foot-long containers, 5.5 times of the sum of the world’s three
major bay areas.

Although the
Chinese economy in recent years has entered a new phase known as the “new
normal,” development will continue to be the cardinal principle. Historically
speaking, in any country it is inevitable for the growth rate to drop from
double digits to a medium rate. No country can sustain high growth forever. But
the “new normal” does not mean that development is no longer important for
China. Today, China faces many problems. As long as the economy is growing,
these challenges will be developmental in nature, but once economic development
goes wrong, problems will surface.

Looking back in
history, social and political transitions (including democratization) are
inevitable, but any peaceful and stable transition requires two essential
preconditions, namely, the economic conditions and the model for social and
political change. It is easy to notice that the democracy of low- and
middle-income countries is often of poor quality while that of high-income
countries works just fine. China will not escape the fate of becoming a
democracy of poor quality if it does not have a solid economic foundation.
Equally important is a sound social and political model. The countries that
became Western-style democracies by simply copying often lose the steam for
economic development and experience political and social instability. The
situation is even worse for those who refused to reform and were bad at
learning from the successful experiences of other countries: it is impossible
for them to grow into modernized nations. It implies that China will have to
sustain its economic growth to become richer before it can become more
democratic. To further its open door policy is an effective path for
sustainable growth.

In the past few years,
China has set up several new free trade zones in Guangdong, Shanghai, Fujian,
and Tianjin. However, the development of these zones has fallen short of the
expectations of the international community and China itself. In fact, voices skeptical
of China’s opening-up policies have recently started to appear in the
international community. Although there is a top-down design, the effect of the
policies has been weakened by the lack of effective institutional arrangements
and executive capacity for policy implementation.

Generally
speaking, before the 18th National People’s Congress, China implemented three
rounds of opening up policies, namely the establishment of the coastal special
economic zones in the 1980s, the policies issued after Deng Xiaoping’s
inspection trip to the southern cities in 1992, and the ones after China joined
the World Trade Organization (WTO) in 2001.

Compared with the
implementation of the previous policies, the execution of the current opening
up policies is far from ideal. Why? It can be attributed to a number of
factors. One of them is that these free trade zones are too homogeneous both
within each zone and between them. The reason that the previous policies worked
was the introduction of heterogeneous elements. In the 1980s, thanks to its
close connection with Hong Kong, Shenzhen developed rapidly and stood out from
all the other coastal economic zones. After the 1990s, China joined the WTO and
took the initiative to carry out a series of institutional reforms, through
which China brought in heterogeneous elements. As for the opening-up policies
in recent years, many observers hold that these were only adjustments of the
internal system rather than fundamental reforms.

China is likely to
turn the situation around by constructing the South China Common Market
(hereafter referred to as the Common Market). Compared with other free trade
zones, the Common Market is characterized by strong heterogeneity. The Common
Market, which includes the mainland China, Hong Kong SAR and Macau SAR, can
realize the efficient allocation of economic resources as well as institutional
(rule of law) and cultural resources. It will enable the spread of the
influence of the two Special Administrative Regions’ international business
environments, mature legal systems, and free and fair trading systems to the
Pan-Pearl River Delta Region and the rest of the country, providing useful
references for other cities to seek further internationalization, refine their
legal environment, and become more market-oriented.

Hong Kong returned
to China in 1997, but its development in recent years is not what many of us
had expected. Many have been surprised by the so-called “independence forces” who
have risen quickly. Though small in number, they cannot be underestimated. It
will be difficult to stabilize the situation in Hong Kong in the long period of
time to come. If they are handled improperly, the Hong Kong community will fall
into a very unstable state. Beijing has realized the severity of the problem,
and is therefore trying to enhance the governance of Hong Kong via a hands-on
policy. But the fact is that the current approach is not very effective.

The situation in
Taiwan is also worrying. It is fair to say that the power of the Kuomintang
(KMT) is waning. The party is conducting reforms now, but reforms will only
result in its further localization. However, if the KMT does not seek further
localization, it will be difficult for the party to survive and develop.
Meanwhile, the younger generations in Taiwan identify themselves less with
China and the pro-independence force is no doubt expanding.

China can maximize the
utilization of economic and social approaches and moderately adjust its own
political system to solve the Hong Kong issue and even the Taiwan issue in the
future.

The “one country
two systems” model applied to Hong Kong was originally designed for Taiwan.
However, the development of Hong Kong showed that this model is not sound
enough to solve the problems and thus it holds little appeal for Taiwan. So what
should China do? If China does not want to use force to resolve the Taiwan and
Hong Kong issues, then a possible option is to construct a new regional system
with Chinese characteristics for Hong Kong and Macau first and then gradually
apply it to Taiwan. One can call this new regional system China’s internal
“European Union.”

Over the years,
China has made great efforts to promote economic integration with Hong Kong and
Taiwan. However, great economic integration has led to widening income
inequality within Hong Kong and Taiwan. Of course, this does not mean that
economic integration is wrong. What has been wrong is the way that economic
integration has been achieved. That means that the fruits of economic
integration were caught by a handful of rich people and put the majority of
society, particularly the youth, in a disadvantageous position.

The construction
of the Common Market will help solve these problems. It is too sensitive to try
to solve the Hong Kong and Taiwan issues through political means and too irrational
to resort to military alternatives. By constructing the Common Market, China
can maximize the utilization of economic and social approaches and moderately
adjust its own political system to solve the Hong Kong issue and even the
Taiwan issue in the future.

How can the construction
of the Common Market result in the establishment of a new regional system with
Chinese characteristics? This question can be answered by referring to the
European Union’s experience. Since its inception, the EU has gone through many
difficulties but in general it has been moving towards social integration
through economic integration. The problem faced by the EU now is how to
integrate politically, because without political integration, it is difficult
to reach a consensus among all the sovereigns once they run into difficulties.
However, this situation will not happen in the Common Market for China has the
Central Government as the powerful coordinator. Constructing the Common Market
can more effectively integrate Hong Kong SAR and Macau SAR into the national
economic development landscape, creating a broader stage for the development of
these two Special Administrative Regions while advancing their in-depth
integration with the mainland of China.

Through the
coordination of the Central Government, the cities of the Common Market can
formulate a series of agreements — even market rules and applicable laws — for
economic cooperation and integration. As with the EU, we can open the labor
market and the service sector of the mainland China to Hong Kong SAR and Macao
SAR to enable the unrestricted flow of labor. The problem of youth unemployment
can be solved if the labor force from the two Special Administrative Regions is
allowed to work in the Common Market. The cities in the Common Market can also
co-ordinate their housing policies to enable young people who cannot afford
housing in Hong Kong SAR and Macau SAR to purchase a house in any city of the
Common Market. They can even coordinate their land policies so that the land
can be leased or transferred for housing construction. For the mainland China,
to introduce the labor force from the two Special Administrative Regions will
bring its services to another level for they are more professional. Therefore,
the free flow of labor will create a win-win situation. Given Hong Kong SAR may
have some concerns at the initial stage, China can open its markets
unilaterally. By doing so, the mainland can draw innovative young people from
Hong Kong SAR to work in the mainland and give full play to their creativity. Due
to its huge size, it will not be difficult for China to absorb negative impacts
associated with unilateralism.

Furthermore, the
Common Market can be built into a world-class platform for trade and investment
and can rival the United States at the international level. Since its accession
to the WTO, China has reaped huge economic benefits and gained importance
within the organization. The United States attempted to constrain China through
the WTO and to completely subject China to the rules of the US-led world
economy. But the United States failed to foresee how resolved and capable China
was going to be in reforming the WTO. After China joined the WTO, the United
States gradually realized that the WTO would no longer help it write the rules
of world trade. Therefore, the United States began to invent other vehicles,
hence the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and
Investment Partnership (TTIP). President Obama made it very clear that the TPP
was to prevent China from laying down the rules of world trade.

In this regard,
the Common Market is of extraordinary significance for China. China cannot
withdraw from international free trade. Free trade is not only an international
economic practice conducive to the development of all countries, but is also
part of international soft power that all modern countries have coveted. It had
been dominated by Britain and taken over by the United States after World War
II. The recent US-led TPP is targeted at China. Basically speaking, it seeks to
push China out of the new club of global free trade. Although the Common Market
is within China’s territory, there is no doubt that it can be built into an
integrated, liberalized, well-regulated, and transparent international trade
platform and a counterweight to the TPP. Furthermore, if the TPP does not come
into effect due to opposition from inside the US political system, China can
take over the flag of free trade. Today, debt, protectionism, refugees, and
geopolitical factors have weakened the development momentum of the global
economy. At this critical juncture, if China can become the flag-carrier of
free trade, it will have a major impact on the global economy.

(This is originally a speech given by the author at a
forum organized by the Guangdong Provincial Government on July 14, 2016.)

About The Author

Yongnian Zheng is Professor and Director of East Asian Institute, National University of Singapore. He is Editor of Series on Contemporary China (World Scientific Publishing) and Editor of China Policy Series (Routledge). He is also a co-editor of China: An International Journal. He has studied both China's transformation and its external relations. His papers have appeared in journals such as Comparative Political Studies, Political Science Quarterly, Third World Quarterly and China Quarterly. He is the author of 13 books, including Technological Empowerment, De Facto Federalism in China, Discovering Chinese Nationalism in China and Globalization and State Transformation in China, and coeditor of 11 books on China's politics and society including the latest volume China and the New International Order (2008).
Besides his research work, Professor Zheng has also been an academic activist. He served as a consultant to United Nation Development Programme on China's rural development and democracy. In addition, he has been a columnist for Xinbao (Hong Kong) and Zaobao (Singapore) for many years, writing numerous commentaries on China's domestic and international affairs.
Professor Zheng received his B.A. and M.A. degrees from Beijing University, and his Ph.D. at Princeton University. He was a recipient of Social Science Research Council-MacArthur Foundation Fellowship (1995-1997) and John D. and Catherine T. MacArthur Foundation Fellowship (2003-2004). He was Professor and founding Research Director of the China Policy Institute, the University of Nottingham, United Kingdom.